time for a rethink

IMO it is time for a rethink on this stock and several others in the mining services.

I think the recent updated trading result has been miss interpreted.

The revenue in the first half was $578 million and the outlook for the year is $1,150 to $1,170. At best a slight increase.

The NPAT after one off items of $9.3 million was $48 million. The year end outlook fot the second half is $42 to $48 million inclusive of one off itmes of $7.9 million.

In the first half revenue from production was 68%. In the trading outlook they flagged reduced activity in exploration and equipment hire. This means for revenue to be maintained then revenue derived from production activities must have increased. This should come as no surprise given increases in production of iron ore.

What this is saying is that the stability of earnings is actually increasing.

Here we have a stock currently at $1.62 with a NTA of $2.28 at 31 December 2012, with a fully franked dividend of 8.84%.

We also have Rio saying that they will increase iron ore production by 50% between 2013 and 2015. Someone has to do the drilling and blasting.

Whilst it is easy to speculate that the big miners will put pressure on rates, what is overlooked is that if you were seeking to increase production ( to offset declining prices) the last thing you would want is the disruption caused by changing out service providers for a small financial gain.

IMO Ausdrill has a great management team. The CFO Jose Martins is excellent. Obviously they were disappointed that they will not achieve last years result of $112 million. The downgrade in earnings must have hurt hence the way it was written up and reported, but is the business in a good position IMO opinion the answer has to be yes.